BendDAO’s protocol TVL plunges 60% amid ongoing liquidity crisis

LAGOS (CoinChapter.com) — The total value of crypto assets locked in nonfungible token (NFT) lending protocol BendDAO has dropped by more than 60% in the last seven days amid ongoing liquidity crisis caused by the massive drop in floor price of NFTs.

In detail, data from DeFiLlama revealed that BendDAO’s protocol TVL plummeted from around $90 million on August 17 to around $35 million at the time of publication. The drop comes amid a massive slump in NFT prices and BendDAO is unable to auction off the liquidated NFTs.

Notably, BendDAO is a peer-to-peer lending service that lets users borrow Ether against their NFTs. Customers can obtain loans up to 40% of the NFT collection’s floor price with the asset pledged as collateral. These funds are lent from the pool, hence the interest earned is distributed amongst the liquidity providers.

However, the recent price drop has pushed several NFT collections beyond their liquidation threshold putting the protocol at risk. As a result, some BendDAO lenders carried out a bank run on the platform amid fears of rising bad debt.

How BendDAO Is Solving NFT Liquidation Crisis

To tackle the current liquidity crisis the BendDAO community voted to change its liquidation protocol for NFT auctions. Data from Snapshot showed that 97% of the community voted to reduce the current requirements for liquidating NFTs.

Notably, participants of the voting include users with 60,000 veBEND tokens. BendDAO’s native token is BEND and veBEND is the staked version of the coin that offers voting privileges to holders.

BendDAO has decided to bring down the liquidation threshold, making it 85% for now and then gradually lowering it to 70% by September 20. It also plans to reduce the liquidation protection window from 48 hours to just four hours, which should ideally reduce the lock-in period for bidders would come down as well. The interest rates have also been pulled down to 20%.

All decisions on bad debts will be brought forward to the BendDAO community, who can vote and determine where revenue will be allocated.

As NFT floor prices remain unsteady during the bear market, DeFi protocols that have been reliant on them are also looking at ways to keep themselves afloat. How BendDAO handles its liquidation crisis will have implications for similar protocols.

For now, the NFT community at large can only wait and see how these changes affect NFT projects. But given the popularity and the strength of the communities behind these NFTs, it’s unlikely that they will fall completely.